The issues presented to the court have implications for warranty and UCC interpretation, equitable indemnity, the Weinhagen exception to the American attorney fee rule, and contractual indemnity and offset for insurer payments.  If you’re interested in reviewing the briefs filed with the Supreme Court, you can find them on the appellate version of CCAP, called WSCCA (Wisconsin Supreme Court and Court of Appeals Access).  For easy access and searching, the appellate case number is 09AP1212 (a number I will likely not be able to forget).  The court of appeals briefs are available on the same page.

This decision is sure to hold interest for pretty much all Wisconsin attorneys who practice in civil litigation.  The court of appeals decision, authored by Judge Fine and filed on June 7, 2011, is available here.

In Bushard, two partners started a dial-up internet access company (quaint, right?) in western Wisconsin.  In 1999, when the relationship between the partners went south, Bushard sent a letter to Reisman, expressing the desire to wind up the partnership, to sell the business to a third party, or to sell to Reisman Bushard’s interest in the partnership.  The partnership was never sold, and Reisman continued to operate the partnership for years.  The company paid draws to both partners and a salary to Reisman. 

In 2006, when dial-up was following 8-tracks, cassettes, and CD players down the tubes, and Reisman wrote to Bushard limiting the monthly partnership draws, the partnership dispute reached a head.   Bushard sued, alleging that Reisman had no authority to take a salary, and seeking an accounting.  Reisman counterclaimed, essentially arguing that Bushard had been admirably compensated for years, and that it would be inequitable to make Reisman pay anything back.

Reisman asserted that because Bushard sought wind-up in 1999, the partnership as of 2006 was in the process of winding up, rather than continuing.  Further, because Bushard had absented himself from the running of the business since 1999, Bushard could be compared to a partner that died, and Wis. Stat 178.15(6) should apply:  “No partner is entitled to remuneration for acting in the partnership business, except that a surviving partner is entitled to reasonable compensation for his or her services in winding up the partnership affairs.”  That is, Reisman should be paid for his efforts in running/winding up the business for the past 7 years.  Seems fair — after all, Bushard collected his partnership payouts for those years, and did nothing to encourage Reisman to actually wind up the business.

Not so fast, according to the Supreme Court.  Reisman, if he wished to protect himself from such an outcome, could have prevailed upon Bushard to agree in writing to pay the salary, or better yet, prepared a more complete partnership agreement:

The apparent inequity that results in this case underscores the value of a written partnership agreement. Commentators have explained that “the partnership statute is, to a large extent, a standard form agreement that can be varied by the parties. Because the standard form often produces unwanted results, partners are well advised to give careful advance consideration to dissolution and its consequences and to draft explicit agreements.” Bromberg & Ribstein, supra, § 7.01(c). 

If the provisions of the UPA are unsatisfactory, partners can and should protect their interests by agreeing to different terms. In the absence of an agreement modifying the provisions of the UPA, a court should decline from fashioning an after-the-fact remedy in pursuit of an equitable result when that remedy contravenes the public policy choices established by the legislature. 

We conclude that the distribution of PressEnter’s profits and losses is governed by Wis. Stat. § 178.15. Reisman’s arguments about equity are insufficient to overcome the plain language of the statute.

Clients often think attorneys are intent on squashing business deals, that lawyers can focus too much on the unlikely bad outcome and weigh the business decision down with a myriad of what ifs and cautionary tails.  Clients are often exactly right in their perceptions, too — but it’s cases like this that demonstrate that there’s a happy medium that must be achieved between the desire to move the deal forward and the desire to protect against at least the most likely bad outcomes.  The best lawyers work cooperatively with their clients to achieve the results the clients desire while protecting from the worst (or most likely) of the possible risks.

In 2005, Jack and Troy filed suit seeking to force Jay to surrender his stock in the company.  Not to be outdone, Jay counterclaimed, alleging that Jack and Troy had conspired to force him out of the company and buy his shares at a discount price.  After a six week jury trial, it became apparent that Jack, Troy, and Jay had all breached duties, and awarded a variety of damages.  The court forced Jay to sell his shares, and found that he, a minority shareholder, had not been oppressed under Wis. Stat. 180.1430(2)(b).  The jury also awarded punitive damages in the amount of $5 million to Jay from Jack, and for $5 million from Jay to Link’s Snacks. 

A flurry of post-verdict motions followed.  Interestingly, Jack filed his motions at 4:32, two minutes after the close of business on the due date.  Luckily for him, the clerk accepted the filing, anyway.  The post-trial motions convinced the trial court to reduce the punitive damages verdicts, and the result was:

Jay was ordered to pay $1 in compensatory damages and $1 in punitive damages to Link Snacks and $1 in compensatory damages and $1 in punitive damages to L.S.I., and Jack was ordered to pay Jay compensatory damages in the amount of $736,000 and punitive damages in the amount of $736,000.

Everyone appealed.  The Wisconsin court of appeals affirmed the reduction of punitive damages awarded to Link’s Snacks and to LSI;  reversed the reduction of the $5 million punitive damages award to Jay, because Jack’s post-verdict motions were untimely, and could not form the basis for a reduction;  and decided that because Jay surrendered his shares as ordered by the court, the benefit-estoppel doctrine acted to waive his right to appeal any other portion of the trial court’s verdict.

To make a long story even longer, the Wisconsin Supreme Court, in a decision written by Justice Gableman, decided the case this way:

(1) The circuit court erred in remitting the award of punitive damages against Jack. The circuit court’s reliance on Treadway in considering Jack’s tardy postverdict motion was misplaced. Treadway does not apply to multi-phase civil actions, such as the instant case. Further, we would decline to extend the bright-line rule of St. John’s Home in order to limit the discretion of the clerk of circuit court in accepting pleadings received after usual business hours. Accordingly, we affirm the court of appeals in its conclusion the circuit court improperly considered Jack’s postverdict motion.

(2) The court of appeals properly rejected Jay’s oppression claim under Wis. Stat. § 180.1430(2)(b). We do not address, however, whether Jay waived his right to bring his oppression claim under the benefit-estoppel doctrine because we conclude he does not have standing to appeal his oppression claim under § 180.1430(2)(b). The statutory language of § 180.1430(2)(b) clearly states that a party must be a “shareholder” in order to seek judicial dissolution of a corporation. Jay lost his status as a shareholder in Link Snacks when he surrendered his shares under the Buy-Sell Agreement. Therefore, we affirm the court of appeals on this issue, but on different grounds.

(3) Jay did not, under the benefit-estoppel doctrine, waive his right to appeal the circuit court’s decision to limit the evidence Jay could present regarding his theory of damages relating to his breach of fiduciary duty claims against Jack and Troy. The contractual obligations set forth in the Buy-Sell Agreement, which were enforced by the circuit court, would not be affected if Jay, on appeal, was successful in arguing that the circuit court erred in limiting the evidence Jay could present regarding his theory of damages relating to his breach of fiduciary duty claims against Jack and Troy. Consequently, the benefit-estoppel doctrine is inapplicable to Jay’s appeal of the circuit court’s decision to limit the evidence Jay could present regarding his fiduciary duty damages theory relating to his breach of fiduciary duty claims against Jack and Troy. We therefore reverse and remand to the court of appeals to decide whether the circuit court erred in limiting the evidence Jay could present regarding his theory of damages relating to his breach of fiduciary duty claims against Jack and Troy.

This is a fascinating case for anyone involved in shareholder litigation, and a cautionary tale for all litigators.  Get your motions and other papers filed timely!  When it comes to high-stakes litigation, the need to address all details can soak up the time you need to get the documents to the court.  While this sort of thing can happen to anyone, the Supreme Court has signalled its position on leniency.

When Vassallo demanded a refund, Viking sued for the balance of the purchase price, and Vassallo counterclaimed for breach of contract.  As did the trial court, the court of appeals made short work of the breach of contract claim, determining that the lack of specification in the contract meant that Vassallo got what it contracted to get:

The trial court found specifically that Country Pasta wanted its packaging system to be more automatic. It wanted to have the “bags closed or tied and the bags to be weighed more accurately.” Nothing in those photographs, or elsewhere in the contract, establish how quickly the packaging system was required to function. By the end of his second visit to Country Pasta, Parrish testified he was able to give Kellogg a package closed with a tin-tie, but Kellogg was dissatisfied because of the way the tin-tied bag performed during handling. Kellogg himself testified that he thought the bags looked “sloppy.” Nothing in the contract even hints at any handling standards the tin-tie must withstand. The record does not explain how the “look” of the bag delivered differed from the photographs attached to the contract. Country Pasta has not established that the packaging system as a whole, or the tin-tie applicator specifically, failed to meet any identifiable “[p]roduct [p]erformance [s]pecifications.”

Likewise, the court determined that Vassallo had accepted the entire packaging system by accepting a part of the commercial unit:

By retaining all of the items in the contract, Country Pasta treated the packaging system in a way that was inconsistent with the seller’s ownership. This conduct constitutes acceptance of goods pursuant to Wis. Stat. § 402.606(1)(c).

Finally, the court of appeals relied upon the factual findings of the trial court in deciding that Country Pasta knew too much to revoke the contract:

The trial court found that when Parrish “told [Country Pasta's] employees that the tin-tie applicator would not work, that certainly was an indication that there was not going to be additional work done.” The trial court also found that “there was no evidence presented at trial as to any further discussion of [additional work].” Thereafter, as the trial court found, Country Pasta “could not reasonably assume that the nonconformity of the machinery would be cured.” These findings make revocation under Wis. Stat. § 402.608(1)(a) and (2) unavailable to Country Pasta.

The moral of the story is the same as always — make your contracts as specific as you can.  What works 99% of the time in business will fail the 1% of the time you land in litigation.  If something’s wrong with an expensive product purchase, complain early, and often, and find someone who knows how to protect your rights under the UCC. 

Pasta photo courtesy Dottie Mae’s photostream via this license.

My client sought to recover its money, claiming, among other things, unjust enrichment.  Wisconsin, from what I can tell, hasn’t directly addressed the issue of whether money stolen from one part to repay another party must be returned to the first party.  I argued that public policy and fairness require that the money be re-paid.  What are your thoughts on the issue, which is admittedly not an easy one?

Last year’s event (the first I attended) was a lot of fun and definitely worth the time.  My firm is once again a sponsor of the event.  If you’re interested in going, click on over to the WisACCA website for more information or register electronically.  Hope to see you there!

In March, the court of appeals reversed Milwaukee County Judge Cooper’s grant of summary judgment to the employer challenge to the City of Milwaukee’s sick leave ordinance.  In MMAC v. City of Milwaukee, the District 1 court of appeals not only reversed the summary judgment that had been granted to MMAC, but remanded with directions to enter summary judgment for the City, upholding the ordinance. 

We disagree with the circuit court and conclude that the proponents of the ordinance, not MMAC, are entitled to summary judgment. Specifically, we hold:

I. The ballot did comply with the statutory requirement that it contain “a concise statement of [the ordinance's] nature” under WIS. STAT. § 9.20(6).

II. The ordinance as a whole and the specific challenged provisions do not violate substantive due process because there is a rational relationship to the City’s police powers.

III. The ordinance is not preempted by state statutes.

IV. The ordinance is not preempted by the National Labor Relations Act (NLRA) or the Labor Management Relations Act (LMRA).

V. The ordinance does not violate the state and federal constitutional prohibitions against impairment of contracts.

VI. The ordinance does not regulate activity outside the City limits.

VII. The two-year period under § 9.20(8), during which the ordinance may not be repealed or amended except by a vote of the electors, excludes the time between the circuit court’s issuance of the temporary injunction and the vacation of the permanent injunction by the circuit court pursuant to this opinion.

As you can see, there’s a lot of detail here, and I’m not going to go into all of it.  This won’t be the last stop for this ordinance, as I’m sure it will end up (if it isn’t already) before the Supreme Court.

The County won summary judgment on the defamation claim, arguing that Farady-Sultze v. Aurora Medical Center, 2010 WI App 99, 327 Wis. 2d 110, 787 N.W.2d 433 “stands for the proposition that the Worker’s Compensation Act provides the exclusive remedy for defamation by an employer, even if the defamation occurs after the employee has been terminated.”  Anderson appealed, and the court of appeals reversed:

We conclude the language of the Act is plain and unambiguous. The Act’s exclusive remedy provision states that, where an injury is covered by the Act, “the right to the recovery of compensation under [the Act] shall be the exclusive remedy against the employer, any other employee of the same employer and the worker’s compensation insurance carrier.” WIS. STAT. § 102.03(2). An injury is covered by the Act where certain conditions are present. See WIS. STAT. § 102.03(1).

As relevant here, an injury is only covered if, at the time of the injury: (1) both the employer and employee are subject to the provisions of the Act; and (2) the employee is performing service growing out of and incidental to his or her employment. WIS. STAT. § 102.03(1)(b)-(c)1. It is undisputed that the injury to Anderson–the alleged defamation–did not occur until after Anderson resigned. Thus, at the time of the injury, Anderson was not the County’s employee and was not subject to the provisions of the Act. See WIS. STAT. § 102.03(1)(b). Furthermore, because he had already resigned, Anderson was not “performing service growing out of and incidental to his employment” at the time of the injury. See WIS. STAT. § 102.03(1)(c)1. Anderson’s injury therefore is not covered by the Act. Consequently, the Act’s exclusive remedy provision does not bar his defamation claim.

That’s the current state of the law.  However, stay tuned for what is likely to be a request for review by the Supreme Court. 

Highway truck photo courtesy OregonDOT’s photostream via this creative commons license.

However, it was not to be.  When Justice Ziegler did not participate, the outcome was a 3-3 tie.  Prosser, Roggensack, and Gableman would have affirmed the appellate court ruling (favoring the corporate officers).  On the other side of the fence, Abrahamson, Bradley, and Crooks would have overturned the appellate court ruling (resulting in a change to the rule).

Joe Forward of the Wisconsin State Bar does a nice job in summarizing the issue.

In Town Bank v. City Real Estate, 2010 WI 134 (Dec. 14, 2010), the parties signed a commitment letter outlining the expected financing for a condo development in Milwaukee, Wisconsin.  Later, the parties signed a Term Credit Agreement (TCA) that included a merger clause encompassing all previous agreements and discussions.  When the relationship fell apart, and City Real Estate had to obtain alternative financing, Town Bank sought a declaration that it had fully complied with the TCA, and City Real Estate counterclaimed for breach.

The Supreme Court summarized the applicable merger clause / integration law and its effect on the application of the parol evidence rule:

However, as Town Bank accurately points out, when the contract contains an unambiguous merger or integration clause, the court is barred from considering evidence of any prior or contemporaneous understandings or agreements between the parties, even as to the issue of integration. See Dairyland Equip. Leasing, 94 Wis. 2d at 608; Matthew, 54 Wis. 2d at 341-42. Again, this principle stems from basic contract law: if the contract is unambiguous, the court’s attempt to determine the parties’ intent ends with the language of the contract, without resort to extrinsic evidence. See Huml, 293 Wis. 2d 169, ¶52. In Dairyland Equipment Leasing, this court defined a merger clause as a “written provision which expressly negatives collateral or antecedent understandings.” 94 Wis. 2d at 608. Thus, by definition, an unambiguous merger or integration clause demonstrates that the parties intended the contract to be a final and complete expression of their agreement. See id.; Matthew, 54 Wis. 2d at 341-42. The contract is therefore fully integrated, and the parol evidence rule goes into effect.

In the end, the Court determined that the merger clause effectively integrated the agreements between the parties, and the parol evidence rule applied.  As a result, the Court also determined that the TCA had been fully complied with, and affirmed the decision of the appellate court.  Justices Bradley and Abrahamson dissented, providing good fodder for arguments on both sides of future merger clauses.